Unit root problem in inflation equation


#1

Why model_diagonistics is showing Euler equation, inflation and Taylor rule equations as collinear? Suggestions required…

easy_MSP_without_FGP_4_results.mat (141.5 KB)


#2

mat-files are not sufficient for debugging purposes. A mod-file is required.


#3

Thank you for your promt reply Professor…The prolem has been solved. I did not enter output gap term in Taylor’s rule firstly. After correcting for it, now code is running!